5 Reasons Business Owners Miss Out on the ERC

The Employee Retention Credit (ERC) is a tax credit introduced by the U.S. government to help businesses during the COVID-19 pandemic. It is designed to provide financial relief to eligible employers who have been adversely affected by the pandemic and have experienced a decline in revenue. Despite being a valuable resource for businesses, many eligible employers have not claimed the ERC for various reasons. In this blog post, we will explore five common reasons why people do not claim the ERC.

1. Lack of Awareness: One of the primary reasons why businesses do not claim the ERC is because they are simply not aware of it. The ERC was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, and it has been subsequently expanded and extended through various legislation. However, not all businesses are well-informed about the ERC or the updates related to it. Many small businesses, in particular, may not have the resources or knowledge to stay updated with the ever-changing tax laws and regulations, which can result in them missing out on claiming the credit.
2. Complexity of Eligibility Criteria: Another reason that prevents businesses from claiming the ERC is the complexity of the eligibility criteria. The ERC has specific requirements that businesses must meet to qualify, including demonstrating a decline in gross receipts or being subject to a government order that fully or partially suspended their operations. Calculating the decline in gross receipts and understanding the various nuances of the eligibility criteria can be challenging for some businesses, especially those without dedicated tax or accounting departments. The complexity of the eligibility criteria can be a deterrent for businesses, leading them to avoid claiming the credit altogether.
3. Fear of Audits and Penalties: Some businesses may be hesitant to claim the ERC due to concerns about potential audits and penalties. The IRS has strict rules and guidelines regarding the ERC, and employers are required to keep accurate records and documentation to support their eligibility for the credit. However, some businesses may fear that claiming the ERC could trigger an audit or result in penalties if they do not fully understand the requirements or fail to maintain proper documentation. This fear of audits and penalties can discourage businesses from claiming the credit, even if they are eligible.
4. Prioritization of Other Relief Programs: Many businesses have relied on multiple relief programs introduced during the pandemic, such as the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program. These programs have been widely promoted and discussed in the media, and some businesses may prioritize these programs over the ERC due to familiarity or perceived higher benefits. Businesses may not realize that they can potentially benefit from both the ERC and other relief programs, and they may not fully understand the advantages of claiming the ERC in addition to other forms of assistance.
5. Resource Constraints: Some businesses may face resource constraints, such as lack of time, staff, or expertise, which can hinder their ability to claim the ERC. The process of claiming the ERC involves gathering and analyzing financial data, calculating the credit amount, completing necessary forms, and submitting the claim to the IRS. This can be time-consuming and require specialized knowledge of tax laws and regulations. Small businesses or those with limited resources may struggle to dedicate the necessary time and effort to navigate the complexities of the ERC, resulting in them not claiming the credit.

In conclusion, while the ERC is a valuable tax credit designed to provide financial relief to eligible employers, there are several reasons why some businesses may not claim it. Lack of awareness, complexity of eligibility criteria, fear of audits and penalties, prioritization of other relief programs, and resource constraints can all be barriers that prevent businesses from claiming the ERC. It is crucial for businesses to understand the requirements may be strict and benefits are very lucrative – but an experienced tax attorney can easily navigate these waters. Don’t let these reasons stand in the way of money you deserve.